Schnader Obtains a Dismissal in a Matter for Covanta Holding Corp.

08/17/2011

Schnader successfully obtained a dismissal with prejudice of a qui tam action brought in federal district court in Newark, New Jersey against Covanta Holding Corp. and certain of its affiliates arising out of Covanta’s operation of a waste-to-energy facility owned by the Union County Utilities Authority (“UCUA”).

The lawsuit was brought by Sunil K. Garg (“Garg”) under the False Claims Act (“FCA”), purportedly on behalf of the United States and the State of New Jersey, and was pursued by Garg on his own after both the United States and the State of New Jersey declined to pursue it. Garg is the Executive Director of the UCUA, but brought the lawsuit without the authority and contrary to the views of the UCUA. Garg contended in his lawsuit that Covanta failed to pay amounts that he (but not UCUA) believed were owed under the agreements between Covanta and the UCUA. To fit within the requirements of the FCA, Garg argued that the money he claimed Covanta owed should be regarded as federal funds because the construction of the waste-to-energy facility was funded by the proceeds of tax exempt bonds.

[Garg’s] theory of the case turns on whether or not the taxes that the federal government does not collect as a result of the UCUA’s bonds’ tax exempt status serve as federal funds for purposes of the FCA. The Court finds [Garg’s] contention that an entity is a grantee or recipient of federal monies by virtue of the fact that said entity is the beneficiary of a federal tax benefit too tenuous to support a theory that the UCUA is either a grantee or recipient of federal monies under the FCA.

The judge went on to note “the UCUA, at best, indirectly receives money by virtue of the fact that is does not pay taxes on the bonds. This does not present the classic arrangement creating a federal funds grantee or recipient for purposes of the FCA. Therefore…[the Court] is unwilling to accept same without binding authority.”

The judge’s complete opinion can be read here. David Smith served as lead counsel for Covanta. Additional members of the Schnader team included Theresa E. Loscalzo, Bruce P. Merenstein, Edward J. Sholinsky, and Peter Colonna-Romano.